The Utility Consumers’ Action Network is demanding that former Executive Director Michael Shames return more than $474,000 of the bonuses he was awarded while running the advocacy group.

In a letter obtained by The Watchdog on Thursday, Chairman Kendall Squires told Shames he can find no record that the group’s board ever approved the awards.

“The duty of the board is to assure proper management of UCAN’s finances and full compliance with the law,” Squires wrote. “This letter demands the return of $474,019 in unauthorized compensation you arranged to be paid to yourself between 2005 and 2011.”

The two-page letter is dated Wednesday. It includes a quote from the state Government Code noting that charity executives are legally required to “review and approve” the pay awarded to nonprofit officers.

Shames, who cofounded the nonprofit in the early 1980s to fight utility companies on behalf of ratepayers, said all of the payments he accepted were included in yearly budgets adopted by the UCAN board.

“I fear it is going to be very embarrassing for the board when it is forced to admit to the public and to the Attorney General’s office that the board approved the bonuses every year in its budget approval process,” he wrote in an email Thursday.

Shames said he will not repay the requested funds.

“I’ve got two attorney opinions, including one by UCAN’s independent counsel, who say that the incentive plan was appropriate and lawful,” Shames said. “Clearly this is going to be a case for the courts to resolve.”

Squires declined to discuss the letter in any detail. He did say the charity plans to amend years’ worth of the nonprofit group’s tax returns to include the bonus money — not previously disclosed.

“Most certainly. That work is being done now,” Squires said. “Any (IRS Form) 990s known to be incorrect will be corrected.”

Shames said it was not his fault the federal tax filings he signed did not report his total compensation as required by law.

“The UCAN CPA prepared those filings in accord with his understanding of the law,” Shames said. “If he was wrong ... then he was wrong. But I wasn’t involved in his decision.”

The bonuses at issue were part of the compensation UCAN was awarded by state regulators for its work on rate-hike applications and other cases pending before the Public Utilities Commission.

According to the Wednesday letter, Shames began taking 10 percent of those awards in 2005 as supplements to his annual salary. The UCAN federal tax filing from that year lists his compensation as $86,000.

Squires noted in the letter that according to board meeting minutes UCAN directors adopted a policy in 2008 that anticipated incentive pay to employees who generate revenue for the organization.

The letter concludes that the board never authorized the bonuses Shames paid himself or determined that the total compensation he claimed was reasonable under the Government Code.

The repayment demand comes as federal agents press an investigation into UCAN business practices.

Last year, two employees accused Shames of maintaining secret bank accounts, laundering money and practicing law without a valid state bar membership, among other things.

Shames denied doing anything improper but acknowledged in February that UCAN had received a federal grand jury subpoena requesting extensive documentation.

The Watchdog reported last week that two FBI agents visited the Point Loma office in September. Squires acknowledged he was interviewed by the FBI as recently as two weeks ago for up to six hours.

Meanwhile, UCAN board member Pat Zaharopoulos resigned her seat this week and assumed the job of interim executive director, Squires said. The charity is conducting a statewide search for a permanent leader.